All posts tagged outsourcing

Spending cuts issued by the U.K.’s coalition government already are being felt.

On Tuesday, Cable & Wireless became the first U.K. company to issue a profit warning directly linked to the government’s austerity budget. And Capita, the U.K.’s biggest outsourcing company, said Thursday that it expects a short-term slowdown as well.

And this is just the beginning.

Many support services giants are saying that they won’t be impacted because they only have business with local governments, not the central government. And afterall, it’s difficult to close down prisons or stop maintaining traffic lights or submarines.

But the U.K.’s dire financial situation means something must be done, so projects will be delayed, spending will be cut and governments will expect better prices, reducing margins. There will be no such thing as “discretionary spending” and those companies that relied on it will be hit.

There are 19 major government suppliers, including IBM, British Telecom, Vodafone and Accenture, that are likely to be affected by the government’s austerity measures. The outsourcers include Capita, rival Serco and security-services provider G4S. JP Morgan estimates that the U.K. public sector accounts for some 57% of Serco’s sales, about 50% of Capita’s and about 9% of G4S’s.